How we can use LST Architecture
In the framework outlined by Babylon's Bitcoin Staking Litepaper, the protocol introduces a novel approach to enhancing Bitcoin's utility within the proof-of-stake (PoS) ecosystem. Initially, users, through their preferred BTC wallet interfaces such as OKX or equivalent, initiate a staking lock on the Bitcoin blockchain. This procedure securely earmarks their Bitcoin holdings for staking purposes, seamlessly integrating Bitcoin's robust security model with the flexibility and yield potential of the PoS paradigm.
Subsequently, users are afforded the opportunity to direct their staking power by selecting a Babylon PoS validator. This selection process is critical, as it aligns the user's staked assets with a validator that represents their interests and expectations for network participation and governance.
The primary Liquid Staking Token (LST), denoted as stBTC, is minted from this process (see Lorenzo Protocol). This token serves as a representation of the staked Bitcoin within the Babylon ecosystem, preserving the intrinsic value of the underlying asset while enabling its functionality within a PoS context.
Expanding upon this foundation, Babylon introduces an innovative mechanism allowing users to further leverage their stBTC holdings. By staking stBTC within designated pools, users can mint an overcollateralized stablecoin, referred to as USBD. This process not only enhances the liquidity and utility of staked Bitcoin but also contributes to a more capital-efficient ecosystem by facilitating a variety of DeFi activities underpinned by the inherent value and security of Bitcoin.
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